Student-Loan Program Back to Speed As Fears of S.&L.-LikeDebacle Ebb

WASHINGTON--Recent anxiety over the stability of the federal
student-loan program seems to be waning as lenders begin issuing their
first aid checks of the semester and negotiations to salvage what
remains of one of the nation's largest student-loan guarantors come to
a close.

Student financial-aid offices, lenders, and guarantors say they are
operating on a business-as-usual schedule to bolster the credibility of
the program and to make sure eligible students receive their loans on
time.

"There is a continuous flow of student-loan money right now," said
Laurie Quarles, a staff associate with the National Council of Higher
Education Loan Programs, an association of guarantors.

"We haven't had any major calls by anyone about any major
disruptions," added Dallas Martin, president of the National
Association of Student Financial Aid Administrators.

The announcement in July that the Higher Education Assistance
Foundation of Overland Park, Kan., was on the brink of financial
collapse and had asked for federal assistance caused lenders to
question the lengths to which the government would go to underwrite the
loan program.

The Education Department's response--that the student-loan program
stood on strong ground and that the department would not go out of its
way to save HEAF, loser of $44 million in 1989 and possesor of a loan
portfolio of $9.6 billion--caused unease among many lenders and
guarantors. (See Education Week, Aug. 1, 1990.)

But the mood has shifted from apprehension to assurance,
student-loan officials say, as the department acknowledged that it
might cost the government $100 million to restructure HEAF, and other
key parties told Senate panelists that the kind of debacle facing the
nation's savings-and-loan industry was not in store for the
student-loan program.

"When this first happened, everybody was a little crazy, and then
things died down," said Susan Macey Thompson, assistant to the chairman
at United Student Aid Funds Inc., one of two companies that appear to
be favored to assume HEAF's operations. "We don't seem to be getting
the phone calls that we were, from lenders or the press."

A spokesman for Richard C. Hawk, HEAF's chairman, said the Education
Department, which has studied takeover proposals by the Student Loan
Marketing Association (Sallie Mae) and USAF, told HEAF that either plan
was acceptable and left Mr. Hawk free to negotiate the details.

The spokesman, Lynn Greenwood, said it was unclear when a final
resolution would be achieved, but added that Mr. Hawk's resignation
would likely be part of any agreement.

Etta Fielek, an Education Department spokesman, refused last week to
acknowledge that negotiations had gotten that far, and said other
players were still involved.

Lax Enforcement?

The dimensions of the student-loan issue are underscored by the fact
that 44 percent of the program's proposed $4.6-billion budget for
fiscal year 1991 will go to cover defaults.

Critics of the program's administration--some of whom have drawn
parallels between the savings-and-loan crisis and the HEAF collapse
because of what they see as lax government oversight in both
instances--have assailed the Eduon Department's enforcement of
accrediting standards for trade schools, whose students account for a
major share of loan defaults.

Secretary of Education Lauro F. Cavazos has pledged to step up the
department's enforcement and accrediting standards, issued new
regulations that make it easier to suspend schools that misuse
financial-aid funds, and dispatched investigators to gather information
on other guarantors.

Mr. Cavazos last week issued a handbook for reducing student-loan
defaults. In it, he said that postsecondary institutions should provide
loan counseling and work closely with lenders to monitor defaults; that
lenders should research loan risks, keep in contact with student
borrowers, and closely follow loan servicers; and that guarantors
should monitor lenders and schools, and enforce default laws and
regulations.

Senate Hearings

The Senate Subcommittee on Education, Arts, and Humanities and the
Senate Banking Committee held hearings this summer on the HEAF crisis,
and the Education Department received much of the blame for not
anticipating the problem.

But Mr. Cavazos said HEAF, lenders, accrediting agencies, and
schools were equally responsible, and maintained that those parties
should have been stricter in enforcing federal regulations.

The Secretary and other witnesses at the subcommittee hearing
dismissed comparisons of the HEAF situation to the multi-billion-dollar
troubles of the savings-and-loan industry.

"There is no way in the world we can compare this situation to the
S.&L. crisis," Mr. Cavazos said. "There is absolutely minimum risk
to the taxpayer."

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